Post 2 of 4 in a series looking at Revolutionizing VPOs.
In our last post (link here) we clearly stated the problem most homebuilders have in managing Variance Purchase Orders (VPOs). If we’re going to have a shot at revolutionizing VPO management, we need a way to turn that chaos into clarity. Enter Reason Codes. These aren’t just labels on a report or headers in a spreadsheet—they’re tools to drive accountability and improvement. Here’s how they help in three big ways:
Reason Codes aren’t just labels on a report… they’re tools to drive improvement.
- Team Assignment and Ownership: Every VPO gets tagged with a reason code that assigns it to a specific team—sales, purchasing, production, etc. This isn’t about pointing fingers; it’s about giving ownership to the group best positioned to address it.
- 10-Second Autopsy – The “Why”: Field Managers don’t have time for a deep dive into every variance. Reason Codes provide a quick, clear answer to “Why did this happen?”—like “Purchasing Quantity Error” or “Sales Change Order Issue”—so action can start fast.
- Reporting and KPIs: With consistent Reason Codes, you can track trends over time. Which teams see the most variances? Which issues keep popping up? This data fuels Key Performance Indicators (KPIs) that guide long-term improvement.
Reason Codes seems deceptively simple, but in practice there a lot of ways you can get off track. Here are some best practices to apply as you implement Reason Codes into your VPO process:
- Not Too Many, Not Too Few: Aim for a manageable list—say, 10-15 codes. Too few, and you lose specificity; too many, and it’s overwhelming. In our webinar on this topic (link here) we suggest codes like “PO Data Error” (Purchasing) or “Site Conditions” (Production).
- Fixed List: Once set, lock it down. Shifting codes messes up reporting—imagine trying to compare “PO Errors” one month to “Purchasing Mistakes” the next. Consistency is key.
- Team-Based: Codes should reflect teams, not just causes. Each code should tie directly to the team ‘best positioned to prevent recurrence’ without any ambiguity or overlap. This is not about blame – it is about solutions, if two teams are responsible for a single reason code, then no one is fully accountable for resolution of VPO’s tagged with that code.
- Integrated on Entry: When a VPO is entered (for example into Mark Systems’ ITK), the Reason Code gets attached right away, linking the cost to the team responsible. This forces the person entering the VPO to think through why the VPO occurred and ensures the team who needs to react will be appropriately notified.
Reason Codes are the critical first step in a solid VPO entry process because they bridge the gap between a VPO’s expense and the team that can stop it from happening again. They’re the foundation of accountability—but they’re only half the battle. If you don’t act on this new info, you’re stuck. That’s where daily reviews come in, and we’ll tackle those in the next post. Stay tuned!